The best bargain left for gold investors?

Dear Investment U Reader, Considering the state of the global economy, we feel every investor should have gold in his portfolio. Today, Commodities Specialist Matthew Carr talks about what could be the best bargain left in the gold sector. Good investing, Jay Livingston Publisher, Investment U The Last True Bargain for Gold Investors? By Matthew Carr Investment U Commodities Specialist Gold has soared this year. Yet gold stocks have lagged the metal itself. And that could be creating a nice buying opportunity for this little-understood corner of the gold market. Here's what I mean... While the Dow Jones Industrial Average lost 1,880 points between July 21 and the morning of August 11, the price of gold shot up 10.5%. Right in the middle of this run, between August 3 and 8, the Market Vectors Gold Miners ETF (NYSE: GDX) tumbled over 6%. Gold and metals miner Agnico-Eagle Mines Ltd. (NYSE: AEM) sank 16% between February and August. During the same span, the price of gold jumped $400 per ounce - a 29.5% increase. Like plenty of other gold miners, AEM is struggling to rebound from highs in December 2010. And a fire at one of its mining operations, which forced the company to lower staffing levels and in turn lowered production levels, has weighed on AEM's shares further. But Agnico-Eagle wasn't alone in struggling over the last six months... Kinross Gold Corp. (NYSE: KGC) is down 6.3%. Great Basin Gold (AMEX: GBG) is down 25.5% since February. IamGold (NYSE: IAG) is down 8.4%. And Newmont Mining (NYSE: NEM) is down a modest 1%. And junior gold miners have been hit even harder. Now, there are some exceptions, like Yamana Gold (NYSE: AUY), which has gained 20% since Valentine's Day. Plus, Goldcorp (NYSE: GG) and Eldorado Gold Corp (NYSE: EGO) are both up over 10% during the same stretch. So, by and large, we've had this tectonic shift. We had seen in 2009, 2010 and early 2011, miners outpaced the gains in physical gold. One big reason for this is the fact that miners got crushed in the downturn, with GDX losing 63% between March 2008 and October 2008. So when the market began its bull run over the last two years, there was a lot of momentum for miners to take advantage of - they had simply been oversold. For instance, AEM didn't recover to the price peak it set in March 2008 until November 2010. The Next "Arbitrage" Opportunity in Gold You can see the real breakdown this year, which started in mid-April 2011. That's when we started seeing gold miners' performance disconnect from the momentum in gold during a correction in gold prices in late January. By May, the spread in performance between gold miners and physical gold accelerated, as you can see in this chart: The question nagging investors is: Are these miners worth it as a "safe haven" or as a good play on physical gold? Particularly with the wide-scale adoption of exchange-traded funds (ETFs)? If we take a look during the same six-month stretch as the aforementioned gold mining stocks: SPDR Gold Trust (NYSE: GLD) is up 28.4%. PowerShares DB Gold Fund (NYSE: DBP) is up 27.4%. iShares Gold Trust (NYSE: IAU) is up 28.5% in the last six months. They've done what they're supposed to do and followed gold as closely as possible. Overall, what's happening in the gold mining sector is similar to what we saw in late 2007 and early 2008 with the broader market bottoming out. On top of that, the South African mining companies have been dealing with their annual workers' strikes. No doubt, there'll eventually be a swing back the other way - the miners will rebound. The performance of gold miners is typically magnified by that of gold... both good and bad. With the massive sell-offs we've seen in stocks recently, it would be very difficult for me to recommend someone purchase a gold ETF over a gold miner. The upside potential for miners outweighs the gains gold might see. If you want protection and a direct peg to gold's price, ETFs aren't a bad option. If you want to profit, buy the gold miners on the dips. Good investing, Matthew Carr

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